Fannie Loosens ARM Down Payment Rules
Fannie Mae is changing the requirement that borrowers pay a higher down payment to qualify for an adjustable-rate mortgage, announcing that it is bringing this type of financing more in line with that of fixed-rate mortgages.
Now, borrowers can make as little as a 5 percent down payment on a one-unit primary property using an ARM. Also among the changes is that borrowers need less equity in order to refinance into an ARM; they now need just 5 percent of equity to refinance. For purchasing a two-unit property, borrowers will need a 15 percent down payment for an ARM, or a 25 percent down payment or equity stake for a property with three or four units.
Investors could be eligible for an ARM on a one-unit property with a 15 percent down payment, under Fannie Mae’s new guidelines.
An ARM is fixed for a set part of the mortgage term—often 5 or 7 years—and then adjusts depending on the current market rate. There are caps on how much it can adjust in one year. ARMs tend to have lower rates than fixed rates, making them an attractive option to borrowers who need to lower their initial costs or plan to own for a short time.
Source: “Fannie Mae Lowers Down Payment Requirements for ARMs,” OriginatorTimes.com (Aug. 26, 2017)